A Multi-Echelon Inventory System with Information Exchange

In this paper, we consider a supply chain model consisting of a single product, one supplier and multiple retailers. Demand at the retailers is random, but stationary. Each retailer places her orders to the supplier according to the well known (Q,R) policy. We assume that the supplier has on-line information about the demand as well as inventory activities of the product at each retailer and employ this information when making order/replenishment decisions. We first propose a replenishment policy for the supplier, which incorporates the information about the inventory position of the retailers. Then, we provide an exact analysis of the operating measures of such systems. Assuming the inventory/replenishment decisions are made centrally for the system, we compare the performance of our model to those that do not utilize information in their decision making, namely, systems, which employ installation stock policies via a numerical experiment. Based on our numerical results, we identify the parameter settings under which information sharing is most beneficial.